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The Supreme Court rewrites the law on damages in public procurement litigation

In the latest decision to emanate from the long-running procurement litigation between ATK and the NDA, the Supreme Court has ruled on a bidder's discretion to issue a claim within the standstill period and when damages will be recoverable.

The facts

On 28 April 2014, ATK brought a claim against the NDA alleging, amongst other things, that it had committed manifest errors and breaches of the Public Contracts Regulations 2006 ("the Regulations"). NDA had carried out a procurement for the decommissioning of 12 nuclear power stations and ATK had been unsuccessful in securing the contract. The contract was estimated to be worth £4.2 billion.

In a landmark ruling delivered on 29 July 2016, the High Court found that the NDA had committed manifest errors and breaches of the Regulations in its assessment of the tenders, that the successful bidder should have been disqualified from the procurement and that ATK should have been awarded the contract. During the liability claim, issues of law arose with regards to damages and causation which ultimately were appealed to the Supreme Court.

The issues before the Supreme Court were:

(i) Whether the Remedies Directive (2004/18/EC) (the Directive) and the Regulations required damages to be awarded for any breach or only in cases of a "sufficiently serious" breach; and

(ii) Was an unsuccessful bidder obliged to issue a claim within the standstill period and/or before contract award in order to mitigate its losses.

The Supreme Court judgment

The Supreme Court held, reversing the decision reached in both the High Court and Court of Appeal, that only a breach which is "sufficiently serious" would entitle an unsuccessful bidder to damages.

This is a marked change to the general position in English and Welsh law which is that damages are recoverable once a breach has been established. This decision therefore potentially adds a further hurdle for unsuccessful bidders to overcome in establishing whether a breach is "sufficiently serious" to warrant an award of damages. However, given previous procurement decisions have suggested that any breach of the Regulations would be serious, it remains to be seen if this position will be maintained by the courts in subsequent cases.

Failure to issue claim within the standstill period/before contract award

The NDA argued that the failure by ATK to issue proceedings within the ten day standstill period necessary to invoke the automatic suspension to prevent the NDA from entering into the contract, amounted to a failure to mitigate its losses on ATK's part.

The Directive and Regulations provide that there is to be a "standstill" period of at least ten days from the date on which a bidder is informed that it has been unsuccessful, during which the relevant contracting authority cannot enter into the contract with the successful bidder. This provides unsuccessful bidders with the opportunity to issue a court claim to prevent the contract being entered into.

The NDA proceeded to enter into a contract with the successful bidder after the expiry of the standstill period (which was voluntarily extended by 4 days) but before the 30 day limitation period expired. When ATK issued a claim within the 30 day limitation period set out in the Directive and Regulations, but after the contract had been let, the NDA argued that this should mean that ATK's remedy should be limited to damages only, as ATK had failed to mitigate its losses. The Supreme Court rejected this argument and agreed with the Court of Appeal and High Court decisions that ATK was not obliged to take advantage of the standstill period to stop the award of the procurement contract. This means that an unsuccessful bidder will not be penalized in damages if it decides to issue a claim after the contracting authority has entered into the contract.

Shortly after the Supreme Court hearing, but before judgment was handed down, the parties are reported to have compromised the claim, pursuant to an early termination of the awarded contract. Both parties agreed to the judgment proceeding to be handed down, irrespective of the settlement reached.

Practical summary

Overall, the Supreme Court decision provides helpful clarification on when damages will be awarded in procurement challenges. However, the decision also creates further uncertainty for challenging bidders as to what breaches will reach the threshold of "sufficiently serious", as this will be heavily dependent on the facts of each case. It is a further consideration to be factored into the decision-making by unsuccessful bidders about whether they should commence a procurement challenge in the courts, if there is no guarantee of a monetary remedy.

It might also be the case that we begin to see a more cautious approach being taken by contracting authorities, who may, going forward, decide to wait until the expiry of the 30 day limitation period before awarding contracts.

Joanne is a Senior Associate in the Cardiff Litigation and Dispute Resolution Team with extensive experience of advising private, public and education sector clients on a wide range of commercial and corporate disputes, including procurement challenges, judicial reviews, breaches of contract, negligence, nuisance, defamation and breaches of confidence and non-compete/restrictive covenant clauses.

Blake Morgan LLP (registered number OC392078) is a limited liability partnership registered in England and Wales with its registered office at Harbour Court, Compass Road, North Harbour, Portsmouth PO6 4ST. It is authorised and regulated by the Solicitors Regulation Authority. A full list of its members is available at all of its offices. The term "partner" is used to mean a member of the firm or employee who is a lawyer with equivalent standing and qualifications.